A loan against property or LAP is one type of secured loan in India. A secured loan is a loan where a lender, typically a bank or non-banking financial company (NBFC), lends funds to a borrower in exchange for collateral. As the name suggests, this type is a loan against property, the collateral in exchange for which the borrower receives funds is property. The lender gives the loan on the condition of the pledging of the borrower’s property till the tenure of loan repayment. Moreover, the lender keeps the original documents and title of the borrower’s property until the borrower repays the entire loan. In the eventuality of default or non-payment, the lender has the right to use the borrower’s property to clear the pending loan amount. There are several advantages of a loan against propertygiven by lenders to borrowers as it is a secured loan. In case you are considering a loan against your property, this list of benefits will help you figure out if it is an ideal fit for your budget and needs.
One of the top benefits of a loan against property is the high loan sanction amount you get. In a loan against a property, the lenders determine the value of the loan amount based on the property's fair market value. They do this through a ratio called the loan to value ratio. Lenders give borrowers up to 70% - 80% of the fair market value of a property for the entire loan tenure. 70% to 80% translates to up to 5 crores, a generous sanction amount compared to different secured and unsecured loans.
You can use the funds received from a loan against property for various purposes. The lender does not mind whether you use it for personal or professional purposes and does not put any restrictions on usage, unlike other mortgage or secured loans. The purposes allowed might vary from lender to lender, but generally, you can use a loan against property for:
As a loan against property is a secured loan, the lender has complete confidence that they have a backup if there are any defaults in repayment or non-payment. Property works as stellar collateral. For this reason, lenders offer loans against property at affordable interest rates compared to other mortgage loans. The interest rate for a loan against property varies from lender to lender. It starts around 8% to 10% per annum but can go even up to 20% depending on the lender. This low-interest rate ensures you get the most benefits of a loan against property and eases the load of paying high EMI payments every month.
A loan against property has a flexible and convenient repayment tenure, so you can pay your EMIs on time and with ease. Unlike unsecured loans where the repayment tenure is short – between 5 and 7 years – the repayment window given in secured loans like a loan against property can even go up to 15 years. The longer time frame does not stress the borrower, lowers their EMI payments, and reduces interest rates, leaving enough space for figuring out your financial obligations and setting aside the monthly EMI for your loan repayment.
In a loan against property, you can use various property types as collateral to avail of the loan. Lenders usually consider residential and commercial properties to approve a loan against property. Some lenders also consider loan against car. But the lenders with your best interests at heart often approve the pledging of industrial and warehouse properties as well. The property can be self-occupied, rented, or vacant – the lender will consider it irrespective of the living situation. However, the properties pledged must be free of encumbrances and legal disputes and have a clear title. Lenders also consider co-owned properties eligible as collateral for a loan against property, but the co-ownership relation criteria vary from lender to lender.
One of the best advantages of a loan against property is that the application and verification process for a loan against property is quicker than that for an unsecured loan. Unsecured loans have no collateral, so the lender cannot rely on them as a security. So, the screening procedure and eligibility criteria are more thorough where lenders check the borrower's repayment capacity at length. Moreover, the online option to apply for a loan against a property makes it very convenient and time-saving. You can expect to get the loan amount to get approved within the same day.
Other benefits of a loan against property include the minimal documentation required to process the loan application. Unlike other loan categories, the documentation needed for a loan against property is basic. The borrower has to furnish:
Minimal to nil foreclosure charges are one of the core benefits of loan against property. Foreclosure is the early repayment or closing of the loan before the end of its repayment tenure. Most banks or NBFC lenders levy between 2% and 4% of the outstanding principal amount as a foreclosure charge along with charging the applicable taxes. However, some lenders do not even charge this amount. Either way, nominal or nil, you can close your loan against property without any worry. Prefer to take loans from those lenders that communicate every charge payable during the loan processing list those charges in loan documentation. Make sure there are no hidden fees.
The eligibility criteria to apply for a loan against property is far less restrictive than unsecured loans. The eligibility criteria might vary from lender to lender, these are some indicative criteria:
Another profitable advantage of a loan against property is its tax benefit. Under Section 24 of the Income Tax Act, 1961, a salaried employee can claim tax benefits on the interest paid (up to 1,50,000 to 2,00,000) for a loan against property and not the principal.
As you can see, there are various benefits of loan against property. However, while looking for a loan against property, consider the lender’s credentials with care. As the relationship you will share with the lender will be long-term, pick a lender whose brand name speaks for itself and who you can trust. If you choose Poonawalla Fincorp as your lender, rest assured we will go the extra mile in providing an ample sanction amount at nominal interest rates, with no hidden charges and agendas.
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